Customer Reviews

Stocks for the Long Run : The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies

5 star:		(36)
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3 star:		(5)
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1 star:		(4)

 

 

Psychologically, almost every human being believes that he or she is potentially able to outperform every other human being. This optimism is a useful quality for spurring people on to strive for better results. When it comes to investing, it can lead to harmful results, however. Too much risk can lead to too little reward.

This book is the best summary of the historical data on investing. Some of the data go back to 1802.

Rather than summarize everything the book shows, let me focus in on a few key points that might slip past you. These are contrary to the conventional wisdom in some cases, and different from what you will hear on television. I suggest you pay careful heed.

(1) Diversification and historical data suggest that you should be sure to invest outside of the United States with part of your financial assets. Currently, for many people, this should be up to 25 percent of the total portfolio in international stocks. These stocks should be equally weighted between Europe, Asia, and emerging countries.

(2) Written in 1997 for this edition when the Dow was 7400, nothing in the book justifies a Dow of 11,000. If you look at the long-term chart of stock-price multiples, there has been a severe downdraft after the two other times when multiples expanded so much. This suggests caution.

(3) Small cap value stocks provided superior returns historically, and those returns were highly concentrated in January of each year. This suggests a potential trading strategy opportunity of owning those stocks in January and shifting into other stocks at the end of January, depending on the 200 day moving average trends.

(4) Almost no professional investors keep up with the market averages over 10 years. Although he doesn't express it, individual investors tend to do worse. Why will it be different for you over the next 10 years? Therein lies the case for index funds and the Dow 10 strategy (buy the 10 highest yielding Dow Industrial stocks each January).

(5) The main cause of more rapid stock price growth in the last 30 years was the ending of the gold standard. Central banks pump up the money supply after gold is taken away, which expands multiples. Over time, this also drives up inflation, which is brutal on stock-price multiples. Alan Greenspan is very aggressive in building up the money supply, even when he is raising interest rates. All of that money eventually causes prices to rise. This will probably happen in this country as the growth in the baby boom population reaching 45 slows. Companies eventually overcome inflation, but the near-term losses can be large. Witness the fact that many Internet stocks are down over 80 percent in the last year.

Whether you agree with these perspectives or not, you should be aware of them. Professor Siegel has done us a service by making the information available. On the other hand, this book needs a third edition to update the data to reflect on the current multiples.

If you are not a quantitative thinker, you will not like this book. Just read my comments and think about them.

If you are a quantitative thinker, you will get many new and important perspectives from this work which suggests that it's not a random walk after all.

Good luck with your investing. Before taking any large risks, be sure you know what the risks are and think through how you will handle them if they turn out to be irresistible forces pushing you in the wrong direction.

Siegel's book is a good read, and he makes the case for equities a compelling one. However, if you're already aware that bonds, savings accounts, and gold are terrible long-term investments due to erosion from taxes and inflation (let alone lousy performance), then this book's strongest point is moot. Siegel's extensive research (some of which has been previously published) overwhelmingly supports the long-term investor; not the long-term investor as defined by today's market paradigm, i.e., long = 12-18 months, but rather looooong, like 20-30 years long...Two-day corrections or eighteen month bear markets can't hold a candle to Siegel's evidence proving that being 100% invested for long periods of time makes for sound financial acumen. Unfortunately, after all that great evidence, Siegel leaves individual investors at the altar, as he concludes that the only way for us to enjoy any investment success is to plunk most of our money in diversified mutual funds with low expense ratios (preferably index funds). This comes off like some kind of a thinly-veiled Vanguard endorsement and is extremely anti-climactic, considering all the great info in the previous chapters. I guess it's good to have on your bookshelf the next time the market drops 512 points and you become tempted to liquidate, because Seigel definitively proves you're better off sticking with stocks through thick and thin.

Wharton finance professor Jeremy Siegel is one of the most credible, most astute stock market analysts in the world. He is not a mindless stock cheerleader; in fact, his March 14, 2000 Wall Street Journal article entitled "Why Big Cap Tech Stocks Are a Sucker's Bet" persuasively pointed out how the high tech stock emperor had no clothes, and helped burst the insanely overvalued tech bubble. This was at a time when the vast majority of Wall Street analysts were inventing new valuation methods to justify insane stock prices, while other more pessimistic analysts had declared an "irrational exuberance" years before the market actually topped.

"Stocks for the Long Run" is Siegel's seminal work (now in its third edition), an excellent introduction to investing for the average investor looking to save for retirement. If the SEC were to choose one book to force people to read before they were allowed to invest their money in the stock market, this book would be it. In fact, the people who lost their retirement money because it was all invested in one stock such as Enron or Worldcom (or a bunch of dot-coms), or who lost a fortune day trading when the market tanked, would have been so much better off if they had just read this book and applied its lessons. They would be better off, the market would be much less volatile, the allocation of capital would be more efficient, the economy would be stronger, and the world would be a better place, if only more people would read this book.

"Stocks for the Long Run" gives you all the knowledge you need to implement a solid investment strategy. Siegel educates and informs (this book will teach you all the basics you need to know to watch CNBC and to understand the market), and he packs his book with as much long-term data and supporting evidence as possible. He is a firm believer in the scientific method and data; he does not posit recommendations unless they are firmly supported by historical evidence.

The good news in the third edition (post 1990s/2000 bubble) is that the case for investing in stocks is still a strong one. Siegel presents extremely persuasive arguments why, long term, stocks hold their value and gain value better than any other type of investment (fundamentally, we must never lose sight of the fact that stocks are claims on real assets and the cash flows generated by enterprises). Surprisingly, stocks are lower risk, long-term, than bonds. Siegel presents some good arguments why stocks now deserve a higher-than-long-term-average P/E, but also shows how index investing (which he still heartily recommends) is distorting the market, and how our expectations for returns from stocks need to come down slightly. He correctly identifies TIPS as the best investment for those seeking short-term safety.

Siegel's main argument is that investors should get into stocks in such a way as to match the overall return of the market, which will provide them with a healthy long-term return on investment. He does show a number of ways to improve on that return and beat the market, such as by recognizing when the market is under and overvalued, thereby buying low and selling high. Thus, I would recommend that a new investor first read, study and apply "Stocks in the Long Run", and then move on to Ben Stein's "Yes You Can Time the Market" as a way to optimize the lessons from "Stocks in the Long Run".

This is an outdated, but still useful introductory investment book. I would like to warn that the book definitely does not pay enough attention to the valuation and bad case scenarios: the real truth is that in case of worst case scenarios investors retire before they can enjoy any sizable return from their stock holdings "in the long run".

Siegel's ability to objectively analyze data is extremely limited and the whole book smells with data mining.

The book also most definitely underemphasizes the pain stock investors suffer after a crash. Moreover typical for the book "exponential" charts like the one on the cover conceal the brutal reality of periods like Japan's multi-year recession.

Beating the good bond portfolio "in a long run" is far from easy outside of periods of "irrational exuberance". In the case the investor faces a decline (or fairly flat decade) for stocks in the second half on their twenty years 401K investment cycle it requires a proper mix of cash, bonds and stocks as well as some successful trades. In no way a pure 100% stock portfolio and cost averaging can secure retirements funds for baby boomers. In this sense the book is extremely dangerous: it sells unscientific, snake oil salesman style advice to baby-boomers under the disguise of academic respectability.

Let's assume that the person was born in 1950, started to invest 10K a year at the age of 40 into 401K account and will be employed till the retirement age. With a simple 100% bond portfolio and 6% average return at the age 65 he/she will have ~$550K. With 100% investment into S&P 500 and assuming after year 2002 an average return of 5% with 10% declines in 2008 and 2013 this investor will get ~$450K: a noticeable difference.

The author also ignores a typical investors behavior during the bubbles: IMHO worst-case scenario are amplified by the fact many individual investors were lured into stock market exactly before the downturn (bear market of March 2001 - March 2002). An investor that switched all his money into S&P in March 24 2001 (when the index was 1521) in March 22, 2002 needs ~30% upswing just to break even. And a single year with 20-30% gain of S&P 500 may not repeat until his retirement. Unfortunately this is pretty realistic case for many individual investors.

The second important point missed by the author is that while the stock market cannot be accurately timed, buying stocks at high valuations is an invitation to low future returns. Robert Shiller (the author of Irrational Exuberance, 2000) argued that twenty year returns following market peaks in P/E ratios had inflation adjusted annual returns -0.2%-+1.9%. Smithers and Wright (Valuing Wall Street, 2000) came to pretty similar conclusions. In such cases stocks fail to outperform inflation protected bonds. And twenty years is what most investors have to create 401K retirement fund. One needs to understand that the US economy might be paying the costs of "irrational exuberance" for some years to come.

All-in-all the book was definitely influenced by the US stock bubble and as a typical "raging bull" the author definitely exaggerates potential returns of an all-stock 401K portfolio and ignores subtle problems. For example, it completly ignores an important problem of "share inflation" that has come in forms ranging from stock splits to extravagant options awards for executives or excessive issuance for acquisitions. It ignores Enron-style effects when along with fake earning reports the U.S. market has been flooded with shares sold by executives and there were not enough buyers to absorb the flow.

Although book provides a useful framework for the investor, do not buy the "Stocks for the Long Run" hypothesis uncritically.

For those investors that are ~50 years old, it is important to understand that the book does not take into account far reaching economic consequences of potential low annual returns on their stock market investments in the last decade before their retirement.

Stocks for the Long Run is a well-written book that is filled with general history, quantitative analysis of past market performance, and also an overview of markets in general. Despite its density, it is a fairly quick read.

I found the historical perspective of the stock market to be very useful. Behavior of the market from 1802 to the present is not only interesting but also gives a much more grounded view of market activity than is often found these days when 'long term' might go all the way back to 1994. Too bad this edition just preceded the totally bonkers bull market activity from 1998 to March 2000 and subsequent crash/return to normalcy.

The book has a much better overview of investment vehicles than I've seen in any beginning investing guide; all the stuff that is downplayed as too complicated for novices, for instance. Not that I'm about to get into shorting index futures as a hedge on my individual stocks, but I am glad to have a better handle on what is going on in those markets out there. Personally I like the detail that went into discussions of various anomalies (January effect, some days or months being worse than others), but that could just be me.

There is an extent to which some 'backtested strategies' are a little too blithely pawned off as reliable into the future, so I am glad I've read other material than just this book. But I also appreciate that certain other myths are deconstructed as well. I guess I would say I believe some of the disproofs of myths more than I do the occasional myths that are given some tenuous level of support in the book, but again that could just be my own skeptical nature.

I think this is an excellent book to read somewhere early in a person's exposure to markets, but probably not the first and certainly not the only one.

This is just an addendum to a review I already wrote; some other reviewers point out that this is not a guide on how to pick stocks, and that is true. I would like to emphasize that the studies of past market behavior described in this book don't seem to point to any reliable method of picking individual stocks, or even evaluating fund managers in any statistically significant manner. This was not a problem for me; the main thrust of the book is that the stock market is the best (only) way to ensure that 'wealth' a) is not gobbled up by inflation and b) has a good chance of appreciating past inflation. With those simple goals in mind, investing in a whole-market index fund with a couple of more focused other index funds doesn't seem like such a bad idea. To really take advantage of the historical perspective offered in this book, it seems very important to keep dollar-cost averaging into these funds even (especially!) during market down times. If your time horizon is long enough, those relatively low-cost purchases will come back in a big way. If you just buy once, you can be sure that after 40 years that purchase will not have lost ground to inflation, but there is no guarantee on the state of the market at the time you need to cash out; to really take advantage of the performance of the market, you must keep buying into it through thick (more or less) but especially thin. In that regard, the secret to financial success is not so much picking x amount of 10-baggers as it is to keep putting money away through all financial conditions that you can manage.

Spend less, save more, and put your savings where they have the best chance to grow.

There are a lot of books out there that try to tell you how to make money in the stock market. This one accomplishes something else. By giving quite a bit of history of market performance and explaining why stocks performed as they did over multiple time periods, Siegel gives the reader a basis for understanding how and why stocks respond to different inputs.

Stocks for the Long Run ends up being a great book to start with for someone who is just beginning to invest in stocks, or for someone who has had a tough go of investing in stocks and is looking to re-ground themselves in the realities of stocks. Siegel does a very nice job of setting realistic return expectations, showing the power of stocks over the long-term and giving guidance on portfolio construction.

This book doesn't give much guidance at all on how to select individual stocks, but that isn't its intent. Instead, it makes a compelling argument for the asset class of stocks in general and lets you know what you can expect as a stock investor.

Well-written and a great background for any aspiring stock investor.

It's not hard to see why this book is recommended by Morningstar both as one of the best books on stock investing and generally as an investing classic. Siegel successfully makes the case that the stock market is the major driver of successful portfolios--returning about 7 percent after inflation with remarkable consistency over the last 200 years.

But just as striking as his case for stocks as a group is his case against trying to pick individual stocks. The reason Peter Lynch and Warren Buffett are legends is that they are so rare: what they do--consistently picking stocks that substantially outperform the market--is virtually impossible.

Luckily, you don't have to be the next Lynch or Buffett to make money in the stock market. A diversified portfolio of low-cost index funds, using dollar-cost averaging and rebalancing, has a good chance of outperforming most professional money managers on a net basis.

This is the best book I've seen for those who want to know how we know that stocks outperform other investments over long periods. A good brief presentation of the same principles, with specific suggestions on how to implement them, is Bill Schultheis's book The Coffeehouse Investor.

Dr. Siegel's class is one of the most popular at the Wharton School of Business. Every day, people crowd into his room just to hear him summarize the market's movements and how the economy is doing. This book encapsulates much of the wisdom that MBA students are paying $100,000 for, which makes the book a real bargain!

Buy, buy, buy! This is the best book on stocks and financials that I have ever read. History and perspective (which may be lacking in today's market)that is well written in an easy to digest style. With this book you don't need "Beating the Dow with Bonds" - throw it in the trash, stocks are proved winners; "Random Walk Down Wallstreet" - covered, save your money plus here there is some evidence for the 200-day moving average strategy - not so Random; "Contrarian Investment Strategies" - yes, proved to be the way to make money and covered in this book.... plus, did you know GE is the only original DOW stock or that the Russell 2000 are only 11% of the market's cap or the genesis of the Dow Transport? It's all in there and more.